Tax Benefits for Rental Property Owners: Know Your Deductions!

Does just thinking about tax time give you a tension headache? We have some relief for you: there are special tax deductions designed for rental property owners/landlords. If you qualify, you can substantially reduce your tax burden and maximize profitability.


In our last post, we discussed deductions related to interest, depreciation, repairs, and improvements. Let’s see where else you can make a dent in your taxable income.


Pass-Through Tax Deduction


The Tax Cuts and Jobs Act will take effect in 2018, and there’s plenty of good news for rental property owners and landlords. Most will qualify for the pass-through deduction, which is a special income tax deduction.


Now, if you qualify as a business for tax purposes (you likely do), you may be able to deduct up to 20% of your net rental income (in addition to your other deductions) or deduct 2.5% of the initial cost of your property plus 25% of the amount you pay your employees.


This deduction is set to expire in 2025, so make the most of it while it’s here.


Independent Contractors and Employees


You often rely on professionals to perform services related to your rental activity; for example, you may hire a resident manager or call in a plumber to fix your boiler. You can deduct their wages.


If you hire an employee, you must withhold state and federal taxes, as well as pay into their Social Security and Medicare taxes. Make sure all of their paperwork (e.g. W4s) is in order.


If you hire independent contractors, you don’t have to do anything unless you pay them $600 or more for the year. If this is the case, get the independent contractor’s taxpayer ID number and file a 1099-MISC to inform the IRS how much you paid them.


Professional Services


It takes a team to manage properties effectively! Whether it’s a real estate investment advisor, a property management company, or an accountant, you depend on this professional advice to maximize profitability. You can deduct fees that you pay to them as long as the work relates to your rental activities.




Deduct the premiums for insurance products related to your rental property/activity. From fire, theft, and flood insurance to landlord liability and employees’ workers comp and health insurance, you can cut down your taxable income by a sizeable amount.




Do you travel to deal with rental activities? You may drive over when you need to handle a tenant complaint or pick up a part at the home improvement store. When you use your vehicle, you can take the standard mileage rate (54.5 cents in 2018 for business travel) OR deduct actual expenses (gas, maintenance, repairs, etc.). If you choose to itemize your deductions, save any and all applicable receipts.


Make sure you’re taking all of the deductions to which you are entitled. This will help take the bite out of tax time!


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